[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37373-37376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15032]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92360; File No. SR-EMERALD-2021-22]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Fees for Purge Ports

July 9, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange''), 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the Exchange's Fee 
Schedule (the ``Fee Schedule'') to amend the fees for Purge Ports.\3\
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    \3\ See Fee Schedule, Section 5(d)(ii).
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange currently provides Market Makers \4\ the option to 
purchase Purge Ports to assist in their quoting activity. Purge Ports 
provide Market Makers with the ability to send quote purge messages to 
the Exchange System.\5\ Purge Ports are not capable of sending or 
receiving any other type of messages or information. The use of Purge 
Ports is completely optional and no rule or regulation requires that a 
Market Maker utilize them.
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    \4\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    The Exchange proposes to amend the monthly fee for Purge Ports 
under Section 5(d)(ii) of the Fee Schedule. Unlike other options 
exchanges that provide purge port functionality and charge fees on a 
per port basis,\6\ the

[[Page 37374]]

Exchange offers Purge Ports as a package and provides Market Makers 
with the option to receive up to two (2) Purge Ports per matching 
engine \7\ to which it connects via a Full Service MEI Port.\8\ The 
Exchange currently has twelve (12) matching engines which means Market 
Makers may receive up to twenty-four (24) Purge Ports for a single 
monthly fee. The Exchange currently assesses Market Makers a fee of 
$1,500 per month, regardless of the number of Purge Ports allocated to 
the Market Maker. Assuming a Market Maker connects to all twelve (12) 
matching engines during a month, with two Purge Ports per matching 
engine, this results in a cost of $62.50 per Purge Port ($1,500 divided 
by 24) for the month. The Exchange now proposes to increase the fee to 
$7,500 per month. Market Makers will continue to receive two (2) Purge 
Ports to each matching engine to which they are connected for the 
single flat monthly fee. Assuming a Market Maker connects to all twelve 
(12) matching engines during the month, with two Purge Ports per 
matching engine, this would result in a cost of $312.50 per Purge Port 
($7,500 divided by 24).
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    \6\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge 
port per month). In Cboe's Purge Ports Frequently Asked Questions, 
Cboe recommends that at least two purge ports be obtained per 
exchange for redundancy purposes. See https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf. See also Nasdaq 
GEMX, Options 7, Pricing Schedule, Section 6.C.(3). Nasdaq GEMX, LLC 
(``Nasdaq GEMX'') assesses its members $1,250 per SQF Purge Port per 
month, subject to a monthly cap of $17,500 for SQF Purge Ports and 
SQF Ports, applicable to market makers.
    \7\ ``Matching Engine'' means a part of the MIAX Emerald 
electronic system that processes options orders and trades on a 
symbol-by-symbol basis. Some Matching Engines will process option 
classes with multiple root symbols, and other Matching Engines may 
be dedicated to one single option root symbol. A particular root 
symbol may only be assigned to a single designated Matching Engine. 
A particular root symbol may not be assigned to multiple Matching 
Engines. See Fee Schedule, Definitions.
    \8\ Full Service MEI Ports provide Market Makers with the 
ability to send Market Maker simple and complex quotes, eQuotes, and 
quote purge messages to the MIAX Emerald System. Full Service MEI 
Ports are also capable of receiving administrative information. 
Market Makers are limited to two Full Service MEI Ports per Matching 
Engine. See Fee Schedule, Definitions.
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    The Exchange has historically undercharged for Purge Port as 
compared to other options exchanges \9\ because the Exchange provides 
Purge Ports as a package for a single monthly fee. As described above, 
this package includes two Purge Ports for each of the Exchange's twelve 
(12) matching engines. The Exchange understands other options exchanges 
charge fees on a per port basis. The proposed monthly fee increase for 
Purge Ports would bring the Exchange's fees more in line with that of 
other options exchanges, while maintaining a competitive fee structure 
for Purge Port.
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    \9\ See supra note 6.
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Implementation Date
    The proposed fee changes will become effective on July 1, 2021.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \12\ in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because, for the 
flat fee, the Exchange provides each Market Maker two Purge Ports for 
each matching engine to which that Market Maker is connected. The 
Exchange currently has twelve (12) matching engines. Accordingly, each 
Market Maker that is connected to all twelve (12) matching engines 
receives a total of twenty-four (24) Purge Ports for the existing flat 
fee of $1,500 per month. On a per Purge Port basis, that equals $62.50 
per Purge Port ($1,500 divided by 24). The Exchange believes that 
increasing the flat monthly fee for Purge Port (regardless of the 
number of matching engines to which it connects and consequently 
regardless of the number of Purge Ports allocated to the Market Maker) 
is equitable, reasonable, and competitive with the fees charged by 
other exchanges that offer comparable purge port services. The Exchange 
believes that most such exchanges charge per port for each match 
engine. For example, BXZ charges a monthly fee of $750 per purge port 
per month, EDGX charges a monthly fee of $750 per purge port, Cboe 
charges a monthly fee of $850 per purge port,\13\ and Nasdaq GEMX 
assesses its members $1,250 per SQF Purge Port per month.\14\ When 
calculated on a per purge port basis, each of the above exchanges 
charge monthly per purge port fees that are higher than the proposed 
$7,500 per month ($312.50 per Purge Port).
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    \13\ See supra note 6. Cboe further recommends that at least two 
purge ports be obtained per exchange for redundancy purposes. See 
https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf. 
This guidance applies to Cboe's affiliate exchanges, BZX and EDGX.
    \14\ See supra note 6.
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    The Exchange operates in a highly competitive environment. Indeed, 
there are currently 16 registered options exchanges that trade options. 
Based on publicly available information, no single options exchange has 
more than 15% of the market share and currently the Exchange represents 
only approximately 3.27% of the market share.\15\ The Commission has 
repeatedly expressed its preference for competition over regulatory 
intervention in determining prices, products, and services in the 
securities markets. Particularly, in Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \16\ The Exchange is not aware of any evidence 
that a market share of approximately 6-7% provides the Exchange with 
anti-competitive pricing power. If the Exchange were to attempt to 
establish unreasonable pricing, then no market participant would 
purchase Purge Ports, and existing market participants would cease 
paying for Purge Ports, which are optional services offered by the 
Exchange. The Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\17\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls because Purge Ports are optional 
functionality offered to Market Makers. The Exchange further believes 
the proposed fees are reasonable as the Exchange believes that the 
proposed fees are lower on a per port basis than

[[Page 37375]]

the fees assessed by other exchanges that provide similar 
functionality.\18\ Indeed, if the Exchange's proposed fees that are 
excessively higher than established fees for similar services on other 
exchanges, then the proposed fees would simply serve to reduce demand 
for the Exchange's services, which as noted, is entirely optional. The 
Exchange notes that Market Makers are not required by rule or 
regulation to purchase Purge Ports. It is entirely a business decision 
of each Market Maker that determines to purchase Purge Ports.
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    \15\ See the Exchange's ``The Market at a Glance'', available at 
https://www.miaxoptions.com/ (last visited June 30, 2021).
    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ See supra note 6.
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    Additionally, Market Makers are not precluded from using the purge 
messages provided by either the MEI protocol or the cancel messages 
provided by the FIX protocol. Under the MEI protocol, Market Makers may 
request that all quotations for all underlyings, or for a specific 
underlying, be removed, and that new inbound quotations for all 
underlyings, or specific underlyings, be blocked. Under the FIX 
protocol, Electronic Exchange Members (``EEMs'') may also request that 
all, or a subset, of orders for an MPID, or all Day or GTC orders for 
an MPID, on the requesting session, be canceled. As such, a dedicated 
Purge Port is not required or necessary. Rather, Purge Ports were 
specially developed as an optional service to further assist firms in 
effectively managing risk.
    The Exchange operates in a highly competitive market in which 
exchanges offer various types of access services as a means to 
facilitate the trading activities of Members and other participants. As 
Purge Ports provide voluntary risk management functionality, excessive 
fees would simply serve to reduce demand for this optional product. The 
Exchange also believes that the proposed Purge Port fees are not 
unfairly discriminatory because they will apply uniformly to all Market 
Makers that choose to use dedicated Purge Ports. Purge Ports are 
completely voluntary and, as they relate solely to optional risk 
management functionality, no Market Maker is required or under any 
regulatory obligation to utilize them. All Market Makers that 
voluntarily select the Purge Port service will be charged the same 
amount for the same respective services.
    As Purge Ports are only available for purging and not for 
activities such as order or quote entry, the Purge Ports are not 
designed to permit unfair discrimination but rather are designed to 
enable Market Makers to manage their quoting risk and meet their 
heightened quoting obligations that other market participants are not 
subject to, which, in turn, benefits all market participants. The 
Exchange believes the proposed fee increase will continue to encourage 
better use of dedicated Purge Ports. This may, concurrent with the 
ports that carry quotes and other information necessary for market 
making activities, enable more efficient, as well as fair and 
reasonable, use of Market Makers' resources. The Exchange also believes 
that the proposed fee increase is non-discriminatory because the 
proposed Purge Port fees will apply uniformly to all Market Makers. 
Purge Ports are completely voluntary and no Market Maker is required or 
under any regulatory obligation to utilize them. All Market Makers that 
voluntarily request this service will be charged the same amount for 
the same service. Separately, the Exchange is not aware of any reason 
why market participants could not simply drop their Purge Ports if the 
Exchange were to establish unreasonable prices for its Purge Ports 
that, in the determination of such market participant, did not make 
business or economic sense for such market participant. No options 
market participant is required by rule, regulation, or competitive 
forces to utilize Purge Ports. As evidence of the fact that market 
participants can and do drop their access to exchanges based on non-
transaction fee pricing, R2G Services LLC (``R2G'') filed a comment 
letter after BOX's proposed rule changes to increase its connectivity 
fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-BOX-2019-04). The R2G 
Letter stated, ``[w]hen BOX instituted a $10,000/month price increase 
for connectivity; we had no choice but to terminate connectivity into 
them as well as terminate our market data relationship. The cost 
benefit analysis just didn't make any sense for us at those new 
levels.'' Similarly, the Exchange noted in a recent filing that once it 
issued a notice that it was adopting Trading Permit fees, among other 
non-transaction fees, one Member dropped its access to the Exchange as 
a result of those fees.\19\ Accordingly, these examples show that if an 
exchange sets too high of a fee for non-transaction fees for its 
relevant marketplace, market participants can choose to no longer 
access that particular exchange.
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    \19\ See Securities Exchange Act Release No. 91033 (February 1, 
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange believes the proposed rule change does not impose any 
burden intra-market competition because the use of Purge Ports is an 
optional service offered by the Exchange and no Market Maker is 
required or under any regulatory obligation to utilize them. The 
Exchange offers Purge Ports as a package and provides Market Makers 
with the option to receive up to two (2) Purge Ports per matching 
engine to which it connects via a Full Service MEI Port. The Exchange 
currently has twelve (12) matching engines which means Market Makers 
may receive up to twenty-four (48) Purge Ports for a single monthly 
fee. The Exchange does not believe that the proposed change represents 
a significant departure from previous pricing offered by the Exchange 
or pricing offered by the Exchange's competitors. Additionally, Market 
Makers may opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Accordingly, the Exchange does 
not believe that the proposed change will impair the ability of Market 
Makers or competing venues to maintain their competitive standing in 
the financial markets.
    The Exchange believes that fees for the proposed Purge Ports and 
connectivity, in general, are constrained by the robust competition for 
order flow among exchanges and non-exchange markets. Further, excessive 
fees for connectivity, including Purge Port fees, would serve to impair 
an exchange's ability to compete for order flow rather than burdening 
competition. The Exchange also does not believe the proposed rule 
change would impact intramarket competition as it would apply to all 
Market Makers equally.
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange operates in a highly competitive environment, and as discussed 
above, its ability to price access and ports is constrained by 
competition among exchanges and third parties. There are 15 other U.S. 
options exchanges, which the Exchange must consider in its pricing 
discipline in order to compete for market participants. In this 
competitive environment, market participants are free to choose which 
competing exchange to use to satisfy their business needs. As a result, 
the Exchange believes this proposed rule change permits fair 
competition among national securities exchanges.

[[Page 37376]]

Accordingly, the Exchange does not believe its proposed fee changes 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\20\ and Rule 19b-4(f)(2) \21\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d1a3a4bdb4fcb2bebcbcb4bfa5a291a2b4b2ffb6bea7"><span class="__cf_email__" data-cfemail="e795928b82ca84888a8a82899394a7948284c9808891">[email protected]</span></a>. Please include 
File Number SR-EMERALD-2021-22 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

    All submissions should refer to File Number SR-EMERALD-2021-22. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-EMERALD-2021-22 and should 
be submitted on or before August 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15032 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P


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